The threat Uber poses to competition and productive capitalism

Uber and other large technology firms have received their share of both good and bad press for 'disrupting' traditional business models. But what if the game is much larger and these companies are a threat to capitalism itself? Antony Funnell reports.

Public discussion about the dramatic rise of Uber is often grounded in the idea of a titanic struggle between old-fashioned expensive taxi companies and a new digital upstart. Uber usually comes out on top because it's new, cool and part of the 'sharing economy'.

But legal academic Frank Pasquale offers a very different perspective. Companies like Uber, he argues, represent a threat to competitive capitalism. Their modus operandi is to use populist discourse—and vast financial backing from venture capitalists—to ignore laws, overwhelm markets and establish monopolies.

The problem is that it really destroys the level playing field because you'll have one tier of firms that is operating in fear of regulation and another tier of mega-firms that simply routes around it, evades it, or co-opts it via lobbying.

Professor Frank Pasquale

Pasquale, who lectures in law at the University of Maryland, says that while Uber likes to present itself as a grassroots/collectivist organisation, it is in fact a massive top-down, San Francisco-based corporation with a market capitalisation of over US$50 Billion. In that sense, he argues, Uber's claims to be a genuine part of the sharing economy appear to be more than a little disingenuous.

'I think you can look back to the old Craigslist model where people were just putting up ads for free and maybe there was some residual advertising advantage for Craiglist to have this big set of people that wanted to find, say, a place to crash for a night or so or something like that. Yes, that's great, it's great to see the internet enable that type of collaboration,' says Pasquale.

'But what you see in a firm like Uber is an appeal to venture capitalists—speculative capital—that wants to see massive returns via monopolisation. Let's not mistake the business model here. The model here is for one of these firms to come in and to take over various aspects of commerce.'

Uber's financial backers are reported to include everyone from the government of the oil-rich sheikdom of Qatar to US-based venture capital firms like Benchmark Capital and NEA—New Enterprise Associates. And that level of backing has provided the ride-sharing app business with a massive war chest, which it uses to wage media/PR campaigns and to stymie often cash-strapped regulatory authorities.

'Many regulators in countries around the world are completely overwhelmed,' says Pasquale. 'They know that if they go after a major Silicon Valley firm they will be dealing with the sharpest attorneys that are out there, the sharpest lobbyists, the people that have the best contacts.'

As a case in point, in 2014 Uber hired former Obama advisor David Plouffe as its senior vice president of policy and strategy.

'What we have to understand is that in many, many places you have massive firms acting almost imperialistically to impose American corporate power,' says Pasquale, who describes firms such as Uber, Airbnb, Amazon and Google as the 'Silicon Valley oligarchs'.

According to him, these companies are defined by a belief that breaking or bending the law is just another cost of business. Pasquale worries that their huge wealth, combined with an open disregard for the law, is leading to the development of a two-tiered corporate environment in the US and elsewhere.

'The problem is that it really destroys the level playing field because you'll have one tier of firms that is operating in fear of regulation and another tier of mega-firms that simply routes around it, evades it, or co-opts it via lobbying. This goes to the core of capitalism, it goes to the core of whether we have markets that work or we have a situation where there is a race to the bottom, where lowest common denominator practices take hold.

'When you have a scenario where very large companies can intimidate regulators by assembling very sharp legal teams that will sandbag them if there is any threat of enforcement, this two-tiered system happens and it's an open invitation to firms to just get bigger and bigger.'

According to Pasquale, the anti-regulatory approach of firms such as Airbnb and Uber can be traced to a broader sentiment within American society that paints regulation—and indeed government itself—as an obstacle to progress. Such sentiments, he says, are whipped-up by populist politics.

'It's unfortunate to see the politicisation here, because it used to be that in the United States the more right party, the Republicans, were very proud of being law and order, whereas more recently we've had Jeb Bush, the brother of George W. Bush, state that he wanted to be the “Uber President”.

'On the one hand you could say that is a legitimate political platform, to deregulate as much as possible. Certainly that was much of the agenda under the George W. Bush administration, but when you combine that with the defiance towards duly constituted legal authority among many of the top managers of these firms, then it starts looking rather sinister. It starts looking like it's less a political platform than an attack on the very idea of politics and governance and the rule of law.'

Pasquale sees the rise of monopolistic capitalism in the United States as a 'juggernaut'; one that's only likely to become more dominant with time as technology firms play an ever increasing role in people's daily lives.

But he also believes we are seeing the beginnings of opposition.

'In places like Europe ... you have a critical mass of reflective regulators who see the long-term picture and who are trying to shape the development of technology by law, rather than just letting the wealthy people who are in control of many of the leading technology firms trample the law or change the law to their will.'

He cites the EU's anti-trust case against Google's monopolisation of the search engine business as an example of the divergence between the attitudes of European regulators and those of their deregulation-friendly US counterparts.

'I think that sort of divergence is going to be very similar in the sharing economy. We'll see over a decade or decades how that works out economically.

'My belief is that the European approach is the one that is necessary to really create the foundation for an innovative economy. While the US may look more appealing right now and may be jumping out ahead with some of these platform monopolists, in the long term Europe is really laying a foundation for a more innovative economy and a more level playing field for everyone.'